Insurance companies must evaluate expected losses in determining the rates to be charged for insurance coverage to protect against those losses. Currently, expected losses for many types of insurance, such as casualty and property insurance, are determined by reference to a selected geographic territory. More specifically, a geographic territory is first defined or selected, and expected losses per insured risk are then calculated for that territory. The basic rate charged for insurance coverage, before individual risk factors other than location are considered, is the same for all specific locations within that geographic territory.
The current method does not reflect the fact that expected losses may vary significantly for different locations within a geographic territory. In addition, the rates charged for insurance coverage may vary dramatically from one geographic territory to the next. As a result, two neighbors who happen to live on opposite sides of a territorial boundary may be asked to pay very different insurance rates.
It is, therefore, an object of the invention to provide a more accurate method of evaluating expected losses at given geographic locations for the purpose of establishing insurance rates for those locations.
It is a further object of the invention to eliminate dramatic differences between the insurance rates charged at adjacent or nearby locations.